March 05, 2014

Virgin America CEO David Cush: Why we want to leave DFW for Love

After Wednesday morning's announcement that Virgin America plans to bid for gates at Dallas Love Field, I talked with Virgin America chief executive David Cush about the carrier's plans for Love and why it wants to exit Dallas/Fort Worth Airport.

Here's excerpts from our conversation.

ST: Why should Virgin America be awarded the Love Field gates instead of Southwest or Delta Airlines who have also expressed interest in the gates?

Cush: I’ll give you the consumer-based reason first which is how we would inject new competition and markets that are important markets that Delta has not proposed. They basically have proposed flying primarily regional jets to their hubs whereas we would be flying mainline aircraft to the major business destinations that the people of Dallas want to go to. As far as us versus Southwest, I think the key thing would be a second competitor in these markets. Southwest has already signaled they would fly to Los Angeles, Washington and LaGuardia and basically we would become a competitor of theirs. It’s always good to have a competitor. It’s always good for the consumers and probably more importantly we have a different type of service than Southwest. We have an award-winning first class product. We have a product that is probably more aimed at a traditional business traveler especially on these longer distances.

That is the consumer argument and then there is the legal argument. Our view is that if you read the consent agreement between American and the DOJ, it’s very clear that all of these assets need to go to low-cost carriers. It names the five low-cost carriers JetBlue, Virgin America, Allegiant, Spirit and Southwest, and Delta obviously is not on that list.

We don’t even consider them to be a candidate for these gates because that would not fufill the requirement of the DOJ consent agreement. My view as far as why we should get them over Southwest from a legal standpoint is Southwest agreed in 2006 to operate from 16 gates. So this is nothing new to them. This is an agreement they entered into voluntarily and whether American or Virgin America is offering out of those two gates, is largely irrelevant. What is relevant is that southwest agreed when the Wright Amendment was repealed or at least the process for appeal was put together Southwest agreed they would operate from 16 gates. From a more legal standpoint that is how I would say we are more deserving them they are.

ST: You’ve announced 18 flights but will be delaying some until 2015. Is that because of plane deliveries and aircraft allocation?

Cush: If you look at it on day one, we would have 14 flights a day. It’s not a slow ramp up. It’s simply when you start a new airport a lot of times it’s easier to take it in a couple of steps. If you look at the announcement we made we’ll fly four flights to Reagan, four flights to Laguardia and then our three to Los Angeles and San Francisco on day one. And then in just a handful of months later we would add the rest of the schedule.

ST: Have you talked to the DOJ or the city of Dallas about the gates?

Cush: We have expressed directly to DOJ our interest in the Love Field. We briefed most of the city council members and as well as the mayor and the city manager on what our proposal is. We did that over the last several weeks, We made sure we did our ground work and respect the process and respect the authority of the leaders of the city of Dallas and so they weren’t caught by surprise by the announcement we made today.

ST: Have you talked to DFW about your intent to pull down your service?

Cush: We gave the airport director a heads up that we were going to make this announcement. We also told them if we are unsuccessful we will stay with our current schedule at DFW and if we are successful then we will honor our lease. We have been clear to them that we are not trying to run away from any financial obligations that we have at DFW and we will honor the lease…It’s for one gate and several ticket counters and we still have several years left on the lease, without getting into specifics because I don’t have them in front of me, generally these are 5 year plus leases so I would say we have several years left on the lease, we told the airport our intention is we’ll honor it and if they don’t have another use for the gate, we will pay rent on it.

ST: When you first entered DFW, you received $2 million in landing fee rebates and marketing cash. Did the end of those incentives cause you to look to move your operations to Love?

Cush: Absolutely not, DFW is the most cost efficient major airport in the United States so costs never really entered into this equation. The fact is wee have an opportunity out of love field to go and serve more destinations out of the Dallas area, an opportunity that doesn’t exist at DFW because of the competitive landscape. As far as wanting to move out of DFW to Love Field it is really based on the fact that we wanted to operate out of a isngle airport rather than two airports versus any comment on DFW, I think it is the best urn airport in the country and certainly the most cost efficient major airport.

ST: When you refer to the competitive landscape, you mean American Airlines’ presence at DFW?

Cush: Absolutely. Competing head to head against American at DFW to two of their hubs, Chicago and Reagan National as well as one of their strongest focus cities LaGuardia, that is just not something we’re going to do. We know the outcome of that. We’ve been able to build up a very nice presence from Los Angeles and San Francisco just because those are our strengths. It’s very different at Love Field because Love Field is primarily an O&D airport where the schedules that will be flown by us as well as by Southwest will focus on local travelers. So instead of having 16 flights a day to Chicago maybe you can get by with three or four flights a day to Chicago because people aren’t connecting through DFW. So while we will compete against American vigorously from Love Field, it will be a little bit of a different dynamic because we don’t have to necessarily match their schedule because we will be at a different airport.

ST: Are your flights at DFW profitable?

Cush: Yes, they are.

ST: In 2006, you were an executive at American, helping the airline launch its new service at Love Field. At the time, you said you didn’t think the operation would be profitable. What makes you believe that Virgin America can turn a profit on flights at Love Field where American could not?

Cush: It’s a completely different situation. At American what they would be doing and I think the specific comments I had on those flights were on particular flights we were operating into Kansas City and St. Louis at the time. Those were basically a duplication of what American was already doing at DFW. My view was, and I still hold this view, that for American that would have number one created an operation at Love Field that would have been difficult to generate a profit and it would have eroded their power position at DFW. So they start competing with themselves at an airport that is 12 miles away. That was my concern at the time, but at the same time American was very focused, as they should have been, on protecting its market position in Dallas. I think where the city has ended up and where the area has ended up is a pretty good place. It was an eight-year sunset that everyone could plan for and now it is in progress and now the city has the opportunity to see some benefits from them.

I will make one other comment on this. I’m sensitive to the fact that the people in Tarrant County may think we’re abandoning them and that’s one of the unfortunate outcomes of this. The customers we do have in Tarrant County, it’s unlikely they will drive to Love Field to fly us. But they will get a benefit out of this, the simple fact that if we’re out of Love Field competing in the local market means that American is going to have to price match us at DFW. So us being a competitor at Love Field is going to have an impact on DFW pricing and American doesn’t discriminate between Tarrant County and Dallas County residents, so the Tarrant County residents will be beneficiaries of us flying more places out of the Dallas area.

ST: You mentioned that residents on the west side of the Metroplex would be unlikely to drive to Love Field to fly on Virgin America. Some airline analysts speculated that since much of the growth in the Metroplex is on the west side that the Love Field gates would not be as attractive to carriers who currently operate out of DFW since they would be giving up access to that market. Why is Virgin America leaving that part of the market?

Cush: Very simply, we know it would be extremely difficult for us to compete on these routes out of DFW. So very simply we would not start these new routes out of DFW because of the competitive market. Also, we’re a small carrier. Even with this expansion we’re going to have 18 flights a day out of Love Field so we don’t need access to the full population of the Metroplex, the full 6 or 7 million people to fill up our airplanes. We think we’ll go for a smaller slice of the population base and geography and do just fine. The nice thing about Love Field is that it is very convenient to downtown Dallas as well as some of the denser population areas. We don’t need access to 6 million people. We only need access to a slice of that that has a high propensity to travel.